Chris House argues that Economics has a conservative bias:
"In economics it seems like the facts and the analysis have much more of a conservative slant than a liberal one. It really is true that taxing labor income reduces labor supply (a little). It really is true that extending unemployment benefits encourages people to delay looking for a job (a little). It really is true that taxation can reduce employment demand; that excessive business regulation seems to be correlated with reduced levels of business formation; that union concentration has a detrimental effect on industries and on and on. "
Matt Yglesias lists points that he believes imply that basic Economics has a liberal bias:
- Governments (typically through central banks) need to manage the demand level of national economies to prevent catastrophic recessions and mass unemployment.
- Absent carbon pricing, a market economy will massively overproduce greenhouse gases.
- Many industries, such as broadband Internet, are "natural monopolies" where an unregulated market will lead to higher prices and less investment than is socially optimal.
- Due to asymmetrical information, consumers in a market economy will be unable to bargain effectively with doctors and other providers of health care services.
- Due to adverse selection, consumers in a market economy will be unable to effectively insure themselves against health risks.
- Due to the declining marginal utility of money, taking $100 from a rich person and giving it to a poor one will increase human welfare.
- Increasing the number of immigrants, raising taxes on the rich, and making Social Security benefits more generous will make almost everyone better off.
I basically agree with both authors on every one of these observations (with caveats on a few*). Econ 101-type analysis does make almost every single one of these points.
But notice that House’s observations basically come from the trunk of Economics, which I take to be spinning out of the observation that voluntary transactions are mutually beneficial thereby creating the invisible hand that leads people to make the world a better place while trying to do nothing more than make themselves better off.
Yglesias’ points, for the most part, reflect conditions under which transactions mutually beneficial to the participants do not, for one reason or another, make the world better off (i.e., "market failures”). The points are all fine, if in some cases overwrought, but unless Matt wants to argue that they completely overwhelm the trunk of Economics, then Economics has a "conservative" bias.
I’m reminded of an interview with an urban planner of some sort who described letting all of the inhabitants of a city trade with each other however the want, put stores wherever they want, and so on, as “the worst possible thing to do.” Not something that can in some cases lead to some negative consequences that might be able to be addressed by some government policy, but, rather, “the worst possible thing to do.”
I can think of something worse. Giving a collection of urban planners carte blanche to dictate how and where individuals interact with each other without allowing for learning and adjustments on a micro level would be worse.
* A few observations about Yglesias' points:
- The basic Economics that I took did not teach that Governments need to manage demand. It did teach about theoretical Keynesian countercyclical policies that Governments could attempt to employ to reduce the scope of the business cycle. It did not necessarily give much hope that real flesh and blood governments would be able to implement these policies in a way that does more good than harm.
- Technically, Econ 101 assumes that interpersonal utility comparisons are impossible, so it cannot teach that a policy which reduces a rich person’s wealth by $100 while simultaneously increasing a poor person’s wealth by $100 necessarily increases human welfare. But it certainly suggests such a thing.
- For similar reasons, in no way does Econ 101 teach that raising taxes on the rich or making Social Security benefits more generous will make almost everyone better off. I honestly have no clue where Yglesias gets that idea, unless it is generalized from the $100 from rich to poor argument. In that case, at worst Econ 102 is going to get into disincentive effects of taxation and the fact that Social Security is fundamentally a transfer from the middle class to the middle class.
- Finally, we Austrian-types tend to view the world as a sea of ignorance surrounding little blobs of knowledge, and the Economic Problem as how to manage to bring these little blobs of knowledge to bear on decisions. In some sense, asymmetrical information is a characteristic of every transaction. Asymmetrical Information is interesting and worthy of study (more so that a lot of other things that get studied). But it’s hard to get as worked up about it as the left does.